BOK governor expects inflation rate to be around 3% in 2H

Bank of Korea Governor Rhee Chang-yong (photo) said that “inflation was the most important factor” for the direction of base rates going forward. He forecasted that the semiconductor industry would be likely to improve in the second half and further boost once the Chinese economy recovers.

Rhee, who is visiting the U.S., to attend the G20 governor of central banks meeting and the IMF-World Bank spring general assembly, said in a press conference with foreign correspondents on Friday (local time), “This year’s inflation is expected to enter 3% range and 3% or under in the second half of the year.” The Consumer Price Index increase rate was 4.2% compared to last year. Rhee said that Korea would leave the option of an interest rate hike open while monitoring inflation, due to uncertainties such as international oil prices and U.S. currency policy changes.

Rhee predicted that the Korean economy would remain sluggish in the first half of the year but rebound in the second, driven by a recovering Chinese economy. Rhee said, "The semiconductor industry is expected to improve once inventories are cleared out.” He also expected increased exports to China and a growing number of Chinese tourists in the second half of the year.

Regarding questions on the need for banks’ management of collateral assets to guarantee possible bank runs, Rhee said that a review might be needed to determine whether banks need to increase the level of guarantee, given Korea’s pace of digital banking growth. He also added though supervisory frameworks were established after the global financial crisis, digital banking has made the framework significantly less relevant. “Social media doesn’t give us enough time to handle problems,” he added. He emphasized the need to prepare and take action to prevent crises like the SVB collapse.


Hyoun-Soo Kim kimhs@donga.com